US stock slide was ‘appetizer’ with ‘main course’ still to come – Morgan Stanley

The Dow Jones Industrial Average index recently suffered two trading sessions when it lost more than 1,000 points. But American stocks may face a much bigger meltdown, warns banking giant Morgan Stanley.

“Appetizer, not the main course,” the bank’s strategists wrote, describing the beginning of the year for the Dow, as quoted by Bloomberg.

The main threat to the stock market is higher bond yields and not faster inflation, according to analysts. A slowdown in the US economy could also be a factor for a decline in stocks.

“It’s when growth softens while inflation is still rising that returns suffer most,” Morgan Stanley wrote. “Strong global growth and a good first-quarter reporting season provided an important offset. We remain on watch for ‘tricky hand-off’ in the second quarter, as core inflation rises and activity indicators moderate.”

Despite the two bad days, the Dow is still up 2 percent since the beginning of the year, erasing all the losses.

Many analysts are comparing the current situation on the US stock markets to 2008 in the wake of the global financial crisis. At the time, stocks also hit several all-time highs, despite warning signs of the impending turmoil.

A recent Bank of America Merrill Lynch fund manager survey for February showed that 70 percent of those polled said the global economy is in its “late cycle.”